Software/Technology Tax Credits

Software touches almost every aspect of our lives and, as such, is one of the fastest growing industries in the world. Software exists at the application level in a variety of different forms, such as on our phones, computers and functional devices, and at the system level in order to run these applications.

The demand for competent developers has caused the wages of these candidates to skyrocket in recent years, straining the budgets of many small- to medium-sized software development businesses. Considering that some startup companies may not see revenue for some years after inception, this situation puts many companies in a compromising position to compete at local, state, national, and global levelly.

Finding effective tax strategies to curb the associated costs of software development, increase your ROI and even remain competitive has never been more important. 

Tax Credit Collective offers a suite of services tailored to the software industry.  On the Federal level, software development matches closely with rules regarding qualification of projects and activities for the R&D Tax Credit. 

Your business could be eligible for tax credits if you have done these tech-related activities:

  • Product Definition

  • Database Implementation

  • Design Feasibility

  • Design Validation and Product Characterization

  • Direct Supervision

  • Documentation Support

  • Failure Analysis

  • Level 2+ Customer Support

  • Package Development

  • Program/Project Management

  • Requirements or Scope Analysis for New or Improved Functional Enhancements

  • Evaluation and Establishment of Functional Specifications

  • Software Source Code Programming

  • Compilation and Testing of Source Code

  • Conduction of Unit, Integration, Functional, Performance and Regression Testing

  • Development of System Architecture

  • Test Development Engineering

Imagine if you could eliminate 7 to 10 percent of your software budget by taking the time to examine whether your software development activities qualify for this incentive without cutting salaries. Further still, the sale, lease or license of software potentially makes you eligible for the Domestic Production Deduction based on up to 9 percent of income derived from qualifying production activities. Finally, software developers could be eligible for the export incentive the Interest Charge Domestic Intentional Sales Corporation (IC-DISC), if their software is used outside the U.S. The IC-DISC can reduce your tax liability by up to 10 percent of the income from qualifying export sales.

 

This doesn’t even factor in the host of state and local tax credits and incentives that may be available to your business. For example, a $10 million software firm with a $4 million development budget that has $5 million in exports per year could save nearly $1 million per year depending on its profitability and taxable income. We see this scenario time and time again.

How many more development projects could

you undertake with if we increased

your profitability by 30% or more?